Execution Risk (xR or exR)

See also: Also known as the mechanical range risk. Execution Risk is a concept that Ken uses for mental state control for your monkey mind. Execution risk is usually one-fifth of your Position Sizing Risk. Execution risk will prevent you from taking a 1R loss. If your position sizing risk is $1, then your execution risk would be 1/5 of $1 or $.20. If you take only a $.20 loss, then you feel like you have won a .80 gain because you were stopped out before the 1R loss. Here’s an example and the difference between Van’s and Ken’s Risk Calculation: On a $100,000 account, the trade risk is .5% of the account or $500 (this is Van and Ken’s 1R Position Sizing Risk). If the stock entry is $30 and the initial stop is $29.60, then the initial risk is $.40 per share. Van’s 1R Calculation is $500 divided by $.40 initial risk equals 1,250 shares. Ken’s initial risk is still $.40 (distance between entry and stop price). Ken uses 1/5 of the 1R position sizing risk ($500 / 5 = $100). This would purchase 250 shares (1,250 / 5). The $100 is your Execution Risk. While in a trade Ken uses both R and exR for mental state control. On entry Ken imagines a full 1R loss which would be a 5 exR loss. If the trade fails and he is stopped out on the initial stop then he is out .2R or 1 exR. Ken’s fireman saved him from the imagined loss of a full 1R (5exR), so 4 exR was saved. Ken frames this as a .4 exR win to keep his mental state and his will to continue to take another trade up.